Macaulay v. WACHOVIA BANK OF SC, NA

• Decision Date: 27 June 2002
• Docket Number: No. 3524.,3524.
• Citation: 569 S.E.2d 371,351 S.C. 287
• Parties: Dr. J. Gray MACAULAY, James C. Perrin, Gladys L. Perrin, Neill M. Perrin, Mary P. Coxe, Joanne M. Cauthen, Dr. Neill W. Macaulay, Rebecca M. Clark, Theodica M. Greene, Henrietta M. Marett, Kathryn D. Durham, William B. DePass, Jr., Wilkes D. Macaulay, Kathryn M. Bishop, Isabel M. Schell, and Dr. Hugh H. Macaulay, Jr., Respondents, v. WACHOVIA BANK OF SOUTH CAROLINA, N.A., Estate of Sara M. McLeod, James L. MacLeod, Individually and as Personal Representative of the Estate of Sara M. McLeod, William L. McLeod, Jr., and Kathryn M. DePass, Defendants, Of whom James L. MacLeod, Individually and as Personal Representative of the Estate of Sara M. McLeod, and William L. McLeod are, Appellants.
• Court: South Carolina Court of Appeals

351 S.C. 287

569 S.E.2d 371

Dr. J. Gray MACAULAY, James C. Perrin, Gladys L. Perrin, Neill M. Perrin, Mary P. Coxe, Joanne M. Cauthen, Dr. Neill W. Macaulay, Rebecca M. Clark, Theodica M. Greene, Henrietta M. Marett, Kathryn D. Durham, William B. DePass, Jr., Wilkes D. Macaulay, Kathryn M. Bishop, Isabel M. Schell, and Dr. Hugh H. Macaulay, Jr., Respondents, v. WACHOVIA BANK OF SOUTH CAROLINA, N.A., Estate of Sara M. McLeod, James L. MacLeod, Individually and as Personal Representative of the Estate of Sara M. McLeod, William L. McLeod, Jr., and Kathryn M. DePass, Defendants, Of whom James L. MacLeod, Individually and as Personal Representative of the Estate of Sara M. McLeod, and William L. McLeod are, Appellants.

No. 3524.

Court of Appeals of South Carolina.

Heard November 7, 2001.

Decided June 27, 2002.

Rehearing Denied September 18, 2002.

T.S. Stern, Jr. and Karen Creech, both of Covington, Patrick, Hagins, Stern & Lewis, of Greenville, for appellants.

Ben G. Leaphart, of Ashmore, Leaphart & Rabon, of Greenville, for respondents.

HOWARD, J.:

This is an action to set aside an irrevocable life insurance trust based upon allegations of incompetence of the settlor and undue influence by the beneficiaries. Isabel M. Dusenberry executed a revocable trust ("the First Trust") and an irrevocable trust ("the Second Trust"). The Second Trust was funded by a newly acquired life insurance policy which had a single premium almost as great as the face amount of the policy due to her age and health. Several beneficiaries of the First Trust (collectively "Respondents") brought this action against Wachovia Bank, as Trustee, and the other named defendants, as beneficiaries of the Second Trust, to set aside the Second Trust and insurance policy. After a full hearing, the probate court concluded Dusenberry was incompetent and subject to undue influence when she executed the Second Trust and purchased the insurance policy. The court ordered the beneficiaries of the Second Trust to return the proceeds of the Second Trust for distribution to Dusenberry's heirs. Beneficiaries of the Second Trust (collectively, "Appellants") appeal.

FACTS

Dusenberry, one of ten children, was born in July 1899. She was an astute businesswoman, and though she could be generous with others, she was known to be frugal with her own expenses. Dusenberry had no children.

In October 1981, Dusenberry and her husband executed wills and revocable trusts leaving the bulk of their estates to each other in the event of death. Soon thereafter, Dusenberry's husband passed away and she began receiving income from her husband's marital trust, for which she held a power of appointment.

In 1987, Dusenberry became unhappy with the bank then administering her trust and moved it and its assets to South Carolina National Bank ("SCN"), which later merged into Wachovia. SCN did not want to hold a power of attorney for Dusenberry as the prior bank had; therefore, Dusenberry executed a durable power of attorney in December 1987 in favor of her sister Sara McLeod and her nephew James MacLeod.¹

On April 5, 1988, Dusenberry executed a will and the First Trust, a revocable trust agreement with SCN as the named trustee. At this time, Sara McLeod and Kathryn DePass were Dusenberry's only living siblings. However, Dusenberry had over twenty nieces and nephews. The First Trust had assets of nearly two million dollars, with an estimated annual income of $131,000. Under the First Trust, 75% of the trust assets (Share A) was divided among numerous relatives and a few former employees. The remaining 25% (Share B) was apportioned among a dozen charities. Among the beneficiaries of Share A, Sara McLeod was to receive 15%, Kathryn DePass 5%, James MacLeod 4%, and William McLeod 3%.

In the will, Dusenberry exercised her power of appointment over the marital trust, giving 25% to Kathryn DePass and 75% to Sara McLeod or her heirs. On August 2, 1988, Dusenberry executed a codicil to her will which altered the power of appointment over the marital trust. The codicil gave 75% of the income of the marital trust to Sara McLeod. Upon Sara's death or upon Dusenberry's if Sara predeceased her, the income was to go to James MacLeod. Upon the death of the survivor of Sara and James, the trust was to be paid out 50% each to the heirs of James MacLeod and his brother William McLeod.

By August 1988, Sara McLeod, the sister Dusenberry had favored under her existing estate plan, was very ill with cancer. On August 18, 1988, Dusenberry filled out an application for a single premium whole life insurance policy with a face value of $250,000. Grady Jenkins, the insurance agent who assisted Dusenberry in obtaining the policy, testified that he had discussed purchasing the insurance with Dusenberry several times before the application was signed. According to Jenkins, Dusenberry was concerned that her estate would be tied up for some time and was interested in insurance because the proceeds would be distributed to the beneficiaries quickly, which would ensure that Sara McLeod's needs were funded. By the time the insurance company received all of Dusenberry's health information, several months had elapsed since the original application had been signed. Dusenberry therefore signed a second application at the request of the company on March 30, 1989. Because of Dusenberry's health and age, the premium for the life insurance policy was $238,750.

On April 29, 1989, Dusenberry executed the Second Trust, funded by the life insurance policy. Other than an initial ten dollar contribution, the insurance policy was the sole asset of the Second Trust. The Second Trust provided for payment of the anticipated $250,000 in proceeds as follows: (1) $150,000 to Sara McLeod, and if she did not survive Dusenberry, then to her descendants; (2) $50,000 to James MacLeod; and (3) $50,000 to Kathryn DePass.

Dusenberry had a series of strokes and was placed in a nursing home in December 1989. Appellants concede she was incompetent after that time until her death in April 1991. According to Appellants, the proceeds of the life insurance policies were paid in June 1991 as provided by the Second Trust. Because Sara McLeod died a few months before Dusenberry, James MacLeod received half of Sara's share of the proceeds, or $75,000, plus his own share of $50,000, for a total of $125,000.

Respondents brought this action seeking to set aside the Second Trust and insurance policy on the grounds that Dusenberry was incompetent when she executed the documents and that she was unduly influenced by James MacLeod and Sara McLeod. The probate court agreed, ruling Appellants must return the proceeds of the Second Trust for distribution to Dusenberry's heirs. Appellants, beneficiaries of the Second Trust, appeal.

STANDARD OF REVIEW

"If the proceeding in the probate court is in the nature of an action at law, the [appellate] court may not disturb the probate court's findings of fact unless a review of the record discloses there is no evidence to support them." Howard v. Mutz, 315 S.C. 356, 361, 434 S.E.2d 254, 257 (1993). "On the other hand, if the probate proceeding is equitable in nature, the [appellate] court, on appeal, may make factual findings according to its own view of the preponderance of the evidence." Id. at 361-62, 434 S.E.2d at 257-58.

The parties agree that Respondents principally sought, and the probate court awarded, equitable relief in the form of a constructive trust on the proceeds of the life insurance policy distributed from the Second Trust. An action to declare a constructive trust is one in equity and this Court may find facts in accordance with its own view of the evidence. Lollis v. Lollis, 291 S.C. 525, 530, 354 S.E.2d 559, 561 (1987). The evidence must be clear, definite and unequivocal to establish a constructive trust. Id. A constructive trust results "when circumstances under which property was acquired make it inequitable that it be retained by the one holding legal title. These circumstances include fraud, bad faith, abuse of confidence, or violation of a fiduciary duty which gives rise to an obligation in equity to make restitution." Hendrix v. Hendrix, 299 S.C. 233, 235, 383 S.E.2d 468, 469 (Ct.App.1989).

Although this Court is not bound by the probate court's credibility determinations, deference to the probate court's findings is appropriate in circumstances where it is apparent from the record that the credibility of the witnesses was a key consideration in weighing the evidence. Weathers v. Bolt, 293 S.C. 486, 488, 361 S.E.2d 773, 774 (Ct.App.1987) ("It is axiomatic that the probate court was in the best position to judge credibility.").

DISCUSSION

I. Mental Capacity

First, Appellants contend the probate court erred in finding Dusenberry lacked the requisite mental capacity to execute the Second Trust and insurance policy. We agree.

The parties agree that the relevant standard for capacity is a contractual standard. Therefore, in order to have the mental capacity required to execute the Second Trust and life insurance contract, Dusenberry must have had the mental capacity to understand or comprehend the subject of the contract, its nature, and its probable consequences. See Cathcart v. Stewart, 144 S.C. 252, 261, 142 S.E. 498, 500-02 (1928); Du Bose v. Kell, 90 S.C. 196, 207-08, 71 S.E. 371, 376 (1911).

"[A] `transaction may be so improvident and unreasonable as in itself to justify the inference of mental incapacity or undue influence or both.'" Avant v. Johnson, 231 S.C. 119, 123-24, 97 S.E.2d 396, 398 (1957) (quoting Page v. Lewis, 209 S.C. 212, 240, 39 S.E.2d 787, 799(1946)). However, "[i]t is also equally true that `an important element of the ownership of property is the right of the owner to convey it on any terms within [her] intention.'" Id. (quoting Brock v. Brock, 218 S.C. 174, 180, 61 S.E.2d 885, 888 (1950)). The party alleging incompetence bears the burden of proving...